traders

How cognitive illusions blind us to reason

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Fun arti­cle by Daniel Kah­ne­man based on his new book,Think­ing, Fast and Slow.

How cog­ni­tive illu­sions blind us to rea­son (The Guardian):

Why do Wall Street traders have such faith in their pow­ers of pre­dic­tion, when their suc­cess is large­ly down to chance? Daniel Kah­ne­man explains. 

- “Look­ing back, the most strik­ing part of the sto­ry is that our knowl­edge of the gen­er­al rule that we could not pre­dict had no effect on our con­fi­dence in indi­vid­ual cas­es. We were reluc­tant to infer the par­tic­u­lar from the gen­er­al. Sub­jec­tive con­fi­dence in a judg­ment is not a rea­soned eval­u­a­tion of the prob­a­bil­i­ty that this judg­ment is cor­rect. Con­fi­dence is a feel­ing, which reflects the coher­ence of the infor­ma­tion and the cog­ni­tive ease of pro­cess­ing it. It is wise to take admis­sions of uncer­tain­ty seri­ous­ly, but dec­la­ra­tions of high con­fi­dence main­ly tell you that an indi­vid­ual has con­struct­ed a coher­ent sto­ry in his mind, not nec­es­sar­i­ly that the sto­ry is true.” …

- “The sub­jec­tive expe­ri­ence of traders is that they are mak­ing sen­si­ble edu­cat­ed guess­es in a sit­u­a­tion of great uncer­tain­ty. In high­ly effi­cient mar­kets, how­ev­er, edu­cat­ed guess­es are no more accu­rate than blind guesses.”

Relat­ed articles:

Change Your Environment, Change Yourself

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(Edi­tor’s note: one of the most com­mon ene­mies of get­ting qual­i­ty cog­ni­tive exer­cise is being on The Daily Trading Coach, by Brett Steenbarger“men­tal autopi­lot”. I recent­ly came across an excel­lent new book, titled The Dai­ly Trad­ing Coach: 101 Lessons for Becom­ing Your Own Trad­ing Psy­chol­o­gist, by trad­ing per­for­mance expert Dr. Brett Steen­barg­er, which explic­it­ly calls for address­ing the “men­tal autopi­lot” prob­lem in his Les­son 4. Even for those of us who are not traders, Dr. Steen­barg­er advice pro­vides excel­lent guid­ance for peak cog­ni­tive per­for­mance. Dr. Steen­barg­er gra­cious­ly gave us per­mis­sion to share with you, below, Les­son 4: Change Your Envi­ron­ment, Change Your­self. Enjoy!).

Human beings adapt to their envi­ron­ments. We draw on a range of skills and per­son­al­i­ty traits to fit into var­i­ous set­tings. That is why we can behave one way in a social set­ting and then seem like a total­ly dif­fer­ent human being at work. One of the endur­ing attrac­tions of trav­el is that it takes us out of our native envi­ron­ments and forces us to adapt to new peo­ple, new cul­tures, and new ways. When we make those adap­ta­tions, we dis­cov­er new facets of our­selves. As we’ll see short­ly, dis­crep­an­cy is the moth­er of all change: when we are in the same envi­ron­ments, we tend to draw upon the same, rou­tine modes of thought and behavior.

A few months ago I had an attack of acute appen­dici­tis while stay­ing in a LaGuardia air­port hotel await­ing a return flight to Chica­go. When I went to the near­est emer­gency room at Elmhurst Hos­pi­tal out­side Jack­son Heights, Queens, I found that I was seem­ing­ly the only native Eng­lish speak­er in a sea of peo­ple await­ing med­ical care. After some dif­fi­cul­ty attract­ing atten­tion, I was admit­ted to the hos­pi­tal and spent the next sev­er­al days of recu­per­a­tion nav­i­gat­ing my way through patients and staff of every con­ceiv­able nation­al­i­ty. By the end of the expe­ri­ence, I felt at home there. I’ve since stayed at the same air­port hotel and rou­tine­ly make vis­its into the sur­round­ing neighborhoods—areas I would have nev­er in my wildest dreams ven­tured into pre­vi­ous­ly. In adapt­ing to that envi­ron­ment, I dis­cov­ered hid­den strengths. I also over­came more than a few hid­den prej­u­dices and fears.

The great­est ene­my of change is rou­tine. When we lapse into rou­tine and oper­ate on autopi­lot, we are no longer ful­ly and active­ly con­scious of what we’re doing and why. That is why some of the most fer­tile sit­u­a­tions for per­son­al growth—those that occur with­in new environments—are those that force us to exit our rou­tines and active­ly mas­ter unfa­mil­iar challenges.

In famil­iar envi­ron­ments and rou­tines, we oper­ate on autopi­lot. Noth­ing changes.

When you act as your own trad­ing coach, your chal­lenge is to stay ful­ly con­scious, alert to risk and oppor­tu­ni­ty. One of your great­est threats will be the autopi­lot mode in which you act with­out think­ing, with­out full aware­ness of your sit­u­a­tion. If you shift your trad­ing envi­ron­ment, you push your­self to adapt to new sit­u­a­tions: you break rou­tines. If your envi­ron­ment is always the same, you will find your­self grav­i­tat­ing to the same [Read more…] about Change Your Envi­ron­ment, Change Yourself

Brain Research Interview Series

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We are work­ing on improv­ing sev­er­al sec­tions of our web­site, espe­cial­ly our Resources sec­tion. It will look much bet­ter in a few days. Our first step has been to re-orga­nize our Neu­ro­science Inter­view Series, and below you have how it looks today.

Dur­ing the last 18 months I have had the for­tune to inter­view over 15 cut­ting-edge neu­ro­sci­en­tists and cog­ni­tive psy­chol­o­gists on their research and thoughts. Here are some of our favorite quotes (you can read the full inter­view notes by click­ing on the links):

[Read more…] about Brain Research Inter­view Series

Brain Fitness Software Trends

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Some very inter­est­ing brain fit­ness soft­ware mar­ket news:

1) Sci­en­tif­ic Learn­ing To Buy Out Soliloquy

- “Sci­en­tif­ic Learn­ing Corp. has announced that it will acquire Solil­o­quy Learn­ing from JTT Hold­ings. Both Sci­en­tif­ic Learn­ing and Solil­o­quy pro­vide tech­nol­o­gy solu­tions for edu­ca­tion. The acqui­si­tion will cost SLC about $11 mil­lion and is expect­ed to be com­plet­ed this month.”

- “Sci­en­tif­ic Learn­ing is the devel­op­er of Fast For­Word, a fam­i­ly of read­ing inter­ven­tion tools tar­get­ed toward stu­dents who are char­ac­ter­ized as strug­gling learn­ers and designed to devel­op the required “neu­rocog­ni­tive skills” for read­ing and learn­ing in gen­er­al. Solil­o­quy is also a read­ing inter­ven­tion developer.”

Com­ment: this acqui­si­tion con­sol­i­dates Sci­en­tif­ic Learn­ing (NSDQ: SCIL) as the lead­ing com­pa­ny in the edu­ca­tion seg­ment of the brain fit­ness mar­ket. It will be inter­est­ing to track what research gets done on the neur­al and cog­ni­tive effects of Solil­o­quy, since Sci­en­tif­ic Learn­ing’s Fast For­word is backed by exten­sive literature.

2) Tech­no­me­dia Part­ners With SBT to Accel­er­ate Its Inter­na­tion­al Expansion

- “Tech­no­me­dia, a Cana­di­an provider of tal­ent man­age­ment and human cap­i­tal devel­op­ment solu­tions, announced its part­ner­ship with the SBT (Sci­en­tif­ic Brain Train­ing) group, a Euro­pean provider of train­ing and eval­u­a­tion of cog­ni­tive func­tions.” [Read more…] about Brain Fit­ness Soft­ware Trends